How is Profit/Loss on Contract ascertained?


0

Ascertainment of Profit/Loss on Contract

 

The Profit/Loss on contract is ascertained as follows:

a)      On completion of Contract:

The excesses of credit over the debit items of the contract a/c is the profit, and the whole of it can be taken into account. The excess of debit over the credit items is loss.

 

b)      On incomplete Contract:

Where a contract takes more one financial year for in to complete, it is usual to take into account a part of the profit only to the Profit and Loss Account. If there is a loss, the whole of the loss is transferred to the P & L A/c.

What part of the notional profit should be credited to the profit and loss account each year, depends on the practice and circumstances of the case. The general rules are:

 

a)      If the value of certified work is less than 1/4th of the contract price, no profit is taken into account, and the balance of the contract a/c is transferred to the Work-in-Progress A/c.

b)      If the certified work is 1/4th or more than 1/4th, but less then ½ of the contract price, only 1/3 of the computed profit as reduced to the cash basis (cash received on work certified), should be credited to the Profit and Loss Account. The formula is:

 

Profit = Computed profit, i.e. Cr. Balance of contract a/c x 1/3 x (cash received / work certified)

 

The balance of the computed profit is a reserve and is transferred to Work-in-Progress A/c.

 

c)      If the value of certified work is ½ or more than ½ of the contract value, 2/3 of the computed profit as reduced to the cash basis is credited to P & L A/c.


Like it? Share with your friends!

0
BMS Team

We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to [email protected].

9 Comments


Warning: Undefined array key "html5" in /home/bmsnewco/public_html/wp-content/plugins/facebook-comments-plugin/class-frontend.php on line 140

Facebook comments:

This Website Is For Sale. Email us an offer we cannot refuse on [email protected] :)

X
Choose A Format
Personality quiz
Series of questions that intends to reveal something about the personality
Trivia quiz
Series of questions with right and wrong answers that intends to check knowledge
Poll
Voting to make decisions or determine opinions
Story
Formatted Text with Embeds and Visuals
List
The Classic Internet Listicles
Countdown
The Classic Internet Countdowns
Open List
Submit your own item and vote up for the best submission
Ranked List
Upvote or downvote to decide the best list item
Meme
Upload your own images to make custom memes
Video
Youtube and Vimeo Embeds
Audio
Soundcloud or Mixcloud Embeds
Image
Photo or GIF
Gif
GIF format